Savings accounts for your lifestyle and career

Savings accounts for your lifestyle and career

Jack Han investigates how to close the gap between your salary and your savings to find the right savings account to suit your lifestyle.

April 15, 2010

We all have different careers, yet we save for similar things, such as a car, a holiday, or a home. But what do our careers and salaries really say about the potential of our savings accounts?

Australians earn, on average, $953.70 a week (before tax), according to the Australian Bureau of Statistics (ABS), which translates to $49,592.40 per year. As a buffer for emergencies or extra future expenses, a healthy ratio of savings is about 10 percent of your earnings after taxes and superannuation. For the average salary, this would mean putting away $4,000 per year.

The reality is that we are only saving about 2.3 percent of our earnings according to ABS figures. In this case, accumulating $1140 per year into our savings accounts will hardly earn us the new car we want, or a deposit on a new home.

How to close the gap
One ageless thought to closing the gap and maximising our savings is to simply earn more. Some of the average salaries in executive, mining, engineering, and construction sectors are more than double the national average income, according to MyCareer, but can your industry really have a dramatic impact on how much you choose to save?

Lifestyles can make a big difference too, depending on how much it encourages consumption. Many frugal lifestyles teach the value of making (or even growing) your own meals, avoiding car usage, and the like.

The perfect match
We can already see how many factors in our jobs and lifestyles that could impact our savings. But one way to guarantee a higher return for everyone is to match your lifestyle and career to your savings account.

Thousands of Australians waste money every year with the wrong savings account. For example, take Mary-Anne, a mother of two from Geelong, Victoria. Mary-Anne wanted to open a savings account and was offered a deal from her local bank.

“The interest rate on the savings account seemed much higher than my transaction account so I signed up without really understanding all of the conditions,” she said.

“It turned out that I needed to deposit a certain amount of money in the account and make no withdrawals each month to receive the ‘bonus interest‘ and when I didn’t comply I received virtually no interest.”

This is why many people choose different accounts that are linked to satisfy different expenses. For example, Leon, a sales executive based in Newcastle, NSW, has regular driving and work-related expenses.

“My offset account is linked to my home loan and my everyday account. All of my income and investment returns are deposited into my offset account and I transfer a budget of living expenses into my everyday account so that way my offset account grows my savings and reduces the interest charged on my loan,” Leon says.

Or take Jenna, a student from Sydney, who links her online savings account to her transaction account.

“I work part time and study full-time and my pay gets deposited into my transaction account. I have an automatic savings plan that is set up to transfer $200 every fortnight to my savings account, which I use to save for my trip to New York at Christmas.”

There are hundreds of different savings accounts in Australia, each suited for a different career and lifestyle. Choose the one that suits you, and close the gap between the savings you have and the savings you deserve.

 

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Learn more about savings accounts

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.